Seattle Bubble

Interesting story from NPR: Washington Mutual Executive Predicted Collapse

For casual observers, bank collapses like this one [WaMu] may seem to have appeared out of the blue. But for executives like William Longbrake, who worked at Washington Mutual for 26 years before September’s tumult, the collapse looked more like a slow unraveling.

Longbrake served as the savings and loan’s chief financial officer from 1982 until 2002 and as a senior executive until a few weeks ago. He says he’s free to talk now about the trouble he saw coming, because no one is left at the thrift to sue him for breaking nondisclosure agreements.

“There was something that disturbed me deeply, and it actually was a long time ago. It was probably about 2003,” he says. “And that’s when home prices began to rise at a rate that was much faster than people’s incomes were rising. Housing prices felt good when they were going up. Everyone was giddy with all the wealth they were accumulating, and a lot of them spent it. The problem was that, all the time, as housing prices were getting higher and higher and higher, the affordability was declining. Eventually, the ability of a lot of people to buy homes just disappeared, and we had too many houses.”

Unfortunately, nobody wanted to hear that kind of sentiment during the boom. Anyone that tried to warn people that home prices were rising too quickly and all the perceived wealth was an illusion was derided as a “doom and gloomer” or outright mocked as a lunatic.

Sometimes it sucks to be right.

Anybody remember the June 8 poll:

That took less than 4 months, for those of you keeping score at home. Also note the July 13 follow-up, in which only 30% guessed incorrectly.

I just thought I’d point this out to those that are accusing this site of being “too negative” or all “doom and gloom” lately. Unfortunately, negative news is the reality these days. Better to face it head on than close our eyes, plug our ears, and pretend everything in the short term will just magically work out great.

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This poll will be active and displayed on the sidebar through 10.11.2008.

Here’s a brief roundup of a bunch of noteworthy items that have popped into my inbox and RSS feeds in the last day or two.

Aubrey Cohen: Current economic woes more like 1873 than 1929.

“When commentators invoke 1929, I am dubious,” writes Scott Reynolds Nelson, a professor of history at the College of William and Mary. “According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany’s inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now.”

Nelson continues: “In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls ‘the real Great Depression.’ She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years.”

Noted.

Seattle Times: Microsoft hiring plans to face “adjustment” as tech spending slows

Microsoft confirmed Friday it’s re-evaluating its current hiring plans and “will make some adjustments as appropriate.”

Those adjustments are likely to be downward, given Chief Executive Steve Ballmer’s recent comments about Microsoft being affected by the economic slowdown.

Although the company still intends to keep growing, any reductions are unsettling for a region reeling from the fire sale of Washington Mutual, the sale of Safeco, a Boeing strike and a sputtering housing market.

Seattle Times real estate blogger Cindy Zetts shares some recent meandering excerpts from her blog, in which she appears to be trying to spin today’s market positively.

Aubrey Cohen also gives a good outline of what the local foreclosure auction scene looks like today.

That’s the foreclosure auction scene these days: lots of houses for sale, lots of cautious investors and an increasing number of civilians who think it might be a good place to get a home at a bargain price.

And lastly, Mr. Cohen again, who points out in his blog that local real estate broker Coldwell Banker Bain is thumbing their nose at the national Coldwell Banker office, declining to participate in the 10% off “10-Day Sales Event.”

“While I appreciate the effort to ‘make something happen’ relative to the more adversely affected markets in the U.S., we strongly feel the ‘retail’ mindset of this promotion is not appropriate,” Ron Sparks, managing vice president Coldwell Banker Bain, said via e-mail. “Homes are unique, and each brings a nuanced value proposition to the market. We do our very best to properly price our listings every day.”

In other words, “Seattle is special. Homes here are worth whatever we say they’re worth, and these stubborn buyers just need to deal with it.”

It’s official: Congress is not interested in addressing the underlying issues that caused this mess.  Instead, they would rather pour trillions of dollars we don’t have into a doomed attempt to maintain the broken status quo.

I predict we’ll be repeating this whole routine in less than six months with a new bailout, after these hundreds of billions fail to fix anything.

Final vote in the House: 263 Yes - 171 No

Here’s how Washington State’s Representatives voted (district map):

YES:

• District 2 - Rick Larsen (D)
• District 3 - Brian Baird (D)
• District 6 - Norm Dicks (D)
• District 9 - Adam Smith (D)

NO:

• District 1 - Jay Inslee (D)
• District 4 - Doc Hastings (R)
• District 5 - Cathy McMorris Rodgers (R)
• District 7 - Jim McDermott (D) (voted YES first time around)
• District 8 - Dave Reichert (R)

Kudos to Jim McDermott (that’s a phrase I never thought I’d use) for actually switching his vote to the responsible side, and to Jay Inslee and Washington’s Republicans for sticking to their principles.

Curious what kind of pork was added to the bill to sway the votes of (at least) 57 congressmen? The Chicago Tribune has a good rundown here.

Update: It looks like my kudos for McDermott were premature. From the Seattle Times:

Democratic Rep. Jim McDermott said his opposition to the economic bailout proposal Friday was a “protest vote” made with the knowledge the bill would pass the House without his support.
…
“I told the speaker [Nancy Pelosi], certainly, if she needed my vote she could have it, but … I didn’t want to vote for it, and I really lodged a protest vote.”

I suppose I should have guessed.

Good news everyone! Seattle is at the top of another one of Forbes’ famous lists!

Hardest And Easiest Places To Sell A Home

As the dismal U.S. housing market slides further downhill—home prices in July posted a 16.3% annual drop—some sellers are unloading their homes to bargain-hunters.

But in cities like Seattle, Jacksonville, Fla., and St. Louis—the hardest major cities in which to sell a home—even sellers who have substantially lowered their prices aren’t finding it easy to move their houses.

Here’s the specific entry for #1 ranked Seattle. Here’s the whole list of Forbes’ hardest places to sell a home:

1. Seattle, WA
2. St. Louis, MO
3. Jacksonville, FL
4. Atlanta, GA
5. Manhattan, NY (Condos)
6. Charlotte, NC
7. Columbus, OH
8. Chicago, IL
9. Detroit, MI
10. Cleveland, OH
11. Miami, FL
12. Boston, MA
13. Tampa, FL
14. Milwaukee, WI
15. New York, NY
16. Denver, CO
17. San Jose, CA
18. Minneapolis, MN

The list is based on a single statistic, the total YOY drop in home sales for each city as of July, according to the latest report from Radar Logic (pdf). Seattle comes in with a 43.7% drop in home sales, with #2-ranked St. Louis showing a 36.1% drop.

(Francesca Levy, Forbes, 10.02.2008)